Component Description and Activities

Overview of the Components

The reformulated tea component aims at complementing the activities financed by the PI (construction of a tea processing plant in the Nshili district) with a view to (a) further increase smallholders’ income, (b) institutionally and financially organize smallholders at local, provincial and national level and, (c) strengthen smallholder tea growers’ capacities. In that respect, the reformulated tea component will include the following sub-components:

• Development of smallholders’ tea production in Nshili district
• Development of smallholders’ tea production in Mushubi district
• Smallholders’ organization and capacity building
• Financial holding

Sub-component 1: Development of smallholders’ Tea Production in Nshili District

The objective of this sub-component is to (a) increase in a sustainable manner the income of 4,800 households through the rehabilitation and development of new tea plantations and the supply of their production to the tea processing plant built in Nshili and, (b) strengthen smallholders’ capacities with regards to tea production leading to a production of better quality and higher yield. In addition, the project will also support Nshili smallholder tea growers until the new tea processing plant becomes operational. In that respect, the activities carried out in this sub-component include:

Rehabilitation and Extension of the Tea Plantation Surface Leased out and Cultivated by Smallholders: Considering the 700 ha allocated to PI from the existing 965 ha OCIR-Thé concession land, and with a view to further increase the smallholders’ income to a level at least equal to the income they would have received with a 0.25 ha tea plot (as under the initial PDCRE design), the project will assist smallholders to develop new tea plantations in their home gardens (thé villageois). Most households have an average of 0.5 to 1.0 ha of land that is not yet cultivated (or only a little fraction for subsistence crops) and that can be used to cultivate tea. In that respect, the project will:

• Rehabilitate 265 ha from the existing OCIR-Thé concession land. 100 ha will be rehabilitated during year 1 of the project and 165 ha during year 2. The recurrent costs related to this 1-year rehabilitation process will be entirely borne by the project i.e. labor, agricultural inputs, fertilizer and small equipments;
• Develop 200 ha of new tea plantations within the existing perimeter of OCIR-Thé concession land. 100 ha will be developed each year starting from year 2. The recurrent costs related to the development of new plantations will be entirely borne by the project until green leaves are sold to the NTF (i.e. after 3 years of development). Recurrent costs include: labor, agricultural inputs, fertilizer and small equipments;
• Develop 735 ha of new tea plantations in smallholders’ home gardens. Sensitization of smallholders will not be necessary as most of them are already aware of the income and net profit from tea production. 245 ha will be developed each year from year 2 onwards. The recurrent costs related to the development of new tea plantations in smallholders’ home gardens will be borne by the project until green leaves are sold to the NTF (after 3 years of development). However, these recurrent costs do not include labor that will be considered as the beneficiaries’ contribution to the component, but include agricultural inputs, fertilizer and small equipments.

The former OCIR-Thé concession land (i.e. the 265 ha rehabilitated and the 200 ha developed) will be leased out to 12 smallholders’ zone associations^[1] (SZA) each regrouping 400 members and receiving 38.75 ha of tea plantations. The Ministry of Land, Environment, Forestry, Water and Mines has already given its approval for a leasing to the SZA free of charge or at a symbolic price. Members of the same SZA will collectively (a) cultivate their SZA plantations and, (b) sell its production to the NTF. Each SZA will be separately registered at the level of the NTF and, each SZA will equally share the profit resulting from sales of green leaves to the NTF among their 400 members, after deduction of operating costs incurred (especially wages for daily workers).

Each smallholder will also individually (a) cultivate his/her home garden and, (b) sell his/her production to the NTF. He/she will be individually registered at the level of the NTF. He/she may also hire external labor that he/she will pay directly.

As a result from this dual type of lands (leased out and home gardens), revenues earned by each smallholder will come from (a) leased out tea plantations cultivated collectively equivalent to 0.097 ha for each smallholder^[2] and, (b) thé villageois produced in smallholders’ home gardens equivalent to 0.153 ha for each smallholder ^[3]. Thereby, each smallholder’s global revenue will be equivalent to the revenue he/she would have received from a 0.25 ha of tea plot. However, landless households’ income will only come from leased out plantations shared profit. To complement this income, they will have priority for jobs at the NTF and/or as daily workers.

Until green leaves are sold to the NTF, the project will give agricultural inputs, fertilizer and small equipments to each SZA, who will then dispatch them among its members. Once green leaves are sold, agricultural inputs, fertilizer and small equipment will be provided by local private micro-enterprises supported by the project (see below).

Each SZA will sign a contract with the project for the provision of the necessary labor force to carry out works in rehabilitated and developed leased out plantations. The contract will end once green leaves produced on these lands are sold to the NTF. The project will pay monthly each SZA on the basis of a document issued by its President. Each SZA will then pay each worker individually but will levy a small percentage (to be agreed upon by all 400 SZA members) to build up its financial resources to finance future actions/activities. Once green leaves are sold, each SZA will pay the daily workers from revenues received from sales to the NTF.

Development of Woodlots: The project will support the development of 100 ha of woodlots on the OCIR-Thé concession land in complement of the 300 ha developed by the PI. The land will be leased out to the smallholders’ main association regrouping all 12 zone associations. Until woodcuts can be sold to the NTF, the project will bear all investment and recurrent costs (i.e. seeds, agricultural inputs, fertilizer, small equipments and labor). The project will provide inputs, fertilizers, seeds and small equipments to the main association while labor costs will be paid by the project to the main association, which in turn will pay each worker individually. Once woodcuts are sold to the NTF, revenues will be kept by the main association to finance recurrent costs (especially labor).

Development of Adequate Infrastructures to Supply Agricultural Inputs, Fertilizers and Small Equipments to Smallholders: The project will support: (a) nurseries; (b) demonstration plots and, (c) micro-enterprises.

Provision of Extension Services to Smallholders: The project will support the provision of extension services to smallholders with a view to building up their capacities and assisting them with their tea production as far as best practices are concerned. The project will finance on a decreasing scale 4 extension officers in charge of managing nurseries and demonstration plots. They will also be vested with the responsibility of training 4 members of each SZA. Each member will then train, supervise tea growing activities on smallholders’ home gardens and on leased out land and provide technical assistance to 100 households members of his/her SZA. Selection of these 4 members will be carried out based on performance indicators such as yield obtained, quantity and quality of green leaves produced. Costs borne by the project include purchase of motorcycles as well as recurrent costs such as salary, social charges and motorcycle running costs. The project will also finance training of these extension officers, including study tours in Rwanda, Kenya and Malawi. Gradually, these recurrent costs will be borne by the Nshili smallholders’ main association (see below). Performance-based bonuses mechanism will be implemented by the project for these extension officers.

Continuation of Services to Smallholders until the NTF Becomes Operational: Until the NTF becomes operational, green leaves will continue to be processed by the Mata tea factory. In order to reduce the losses incurred by smallholders when supplying their green leaves to Mata, the project will finance the purchase of a new truck with adequate storage facility and will finance its operating costs until NTF is operational. At that time, the truck will then be used by each zone association to collect and transport green leaves to the NTF and the recurrent costs will then be borne by each SZA.

Baseline Survey: A specialized Rwandan service provider will be contracted out by the project to undertake a baseline survey to determine the socio-economic status of the target group with a focus on household’s economy and agricultural production in their home gardens. The baseline survey will be carried out at the inception of the component.

Sub-component 2: Development of Smallholders’ Tea Production in Mushubi District

The objective of this sub-component is to diversify the sources of income for 4,800 households through the development of tea plantations and the building up of their capacities. The activities carried out under this sub-component will not vary from the activities identified and planned in the Appraisal report. These activities include:

• Establishment of 1,200 ha of new smallholder tea plantations, based on individual plots of 0.25 ha each. The project will support individual smallholders to plant 0.25 ha of tea each on their fallow land, up to a total planted area of 800 ha. It will also support smallholder tea planting on 200 ha of land which is of marginal value for food-crop production, including parts of terrasses radicales developed under the IFAD project PDAG, as well as on 200 ha of district land recently allocated to poor vulnerable returnee households. The project will finance the recurrent costs related to the establishment of these new plantations until production is processed by a factory and income is earned by smallholders;
• Establishment of 500 ha of firewood plantations, of which 200 ha of District plantations and 300 ha on individual farmers’ plots, to provide fuel to power the future processing plant. The project will bear all costs related to these activities;
• Formation of smallholders’ associations and training of their members.

To build up smallholders’ capacities, the project will also support the provision of adequate extension services to smallholders. The project will finance 4 extension officers in charge of managing demonstration plots and of training 4 members of each SZA they supervise. These members will then provide technical assistance, train smallholders and supervise tea growing activities on each land cultivated by smallholders (i.e. developed land and home gardens). Costs borne by the project include purchase of motorcycles as well as recurrent costs such as salary, social charges and motorcycle running costs. The project will also finance training of these extension officers, including study tours in Rwanda, Kenya and Malawi. Gradually, these recurrent costs will be borne by the Mushubi smallholders’ main association (see below). Performance-based bonuses mechanism will be implemented by the project for these extension officers.

Saleable green leaves from newly developed tea plantations will become available for processing during year 4 to 5 of the project. At that time, a tea factory has to be operational to process that production. Any other solution regarding the processing of the green leaves in other existing factories will lead to the same problems that Nshili tea growers have experienced with Mata and such solutions are not sustainable for Mushubi tea growers. In that respect, the project will organize meetings with GoR representatives, private investors, commercial banks and smallholders’ association representatives with a view to jointly finalizing a project aiming at the construction of a new tea factory in Mushubi district. Ideally, a sustainable plan of actions should be worked out and finalized by the time tea bushes are planted in smallholders’ home gardens and in developed lands.

Sub-component 3: Smallholders’ Organization and Capacity Building

Considering the government’s on-going privatization policy of tea factories and its consequences for the Rwandan tea production (private investors striving to maximize profits by producing premium quality tea for export markets, improving yields and quality and increasing extents under tea), smallholders who represents a large majority of the tea producers will undoubtedly play a more important role than at present time. Based on the 13 organizations already formed by smallholders in the 5 provinces where tea is grown, the objective of the project is to support the development of local and provincial smallholders’ associations and the development of a national smallholders’ Federation, starting with Nshili and Mushubi and progressively expanding to other regions. The role of this Federation is two-fold: (a) smallholders’ representation vis-à-vis the GoR, the future Tea Regulatory Board, Private Investors and other stakeholders in the tea sector and, (b) dissemination of well coordinated extension services, of new techniques, equipments and technologies to its members. In that respect, activities supported by the project with the facilitation of the GoR are as follows:

• Short-term technical assistance from international and local specialists to establish the necessary structures/institutions for the smallholders’ organization (including draft of their charter, internal procedures and regulations) at zonal, local, provincial and national levels;
• Implementation of a financial mechanism ensuring the sustainability of the Federation and of the zonal, local and provincial associations. This mechanism would be based on membership fee, contributions levied on each member’s annual income from tea production and, withholding tax on payments of labor force required on rehabilitated and developed lands leased out. These contributions will be paid by each smallholder to his/her smallholders’ zone association (SZA). The SZA will pay its contribution to the Nshili Tea Smallholders’ Association (local level) which in turn will pay its contribution to the Gikongoro Tea Smallholders’ Association (provincial level) which, finally, will pay its contribution to the Rwandan Tea Smallholders’ Association (national level). The financial resources collected will enable the Federation to gradually take over the costs of extension officers primarily financed by the project (see above) as well as the costs of implementing additional demonstration plots and nurseries. The design and implementation of the financial mechanism will be carried out by the PCU Tea component Manager, local specialists and members from smallholders’ institutions at all level;
• Sensitization and information meetings on the importance and usefulness of strengthening tea smallholders in Rwanda through efficient zonal, local, provincial and national representation bodies. These sensitization and information activities will be carried out during the first 2 years of the component by the PCU Tea component Manager. These activities will start in the Gikongoro province and then will be expanded in other tea producing provinces;
• Capacity building of office bearers of these smallholders’ institutions through adequate training, study tours in neighboring countries, exchange programs, workshops and information dissemination with other tea growing countries.

In order to facilitate the implementation of the zonal, local, provincial and national smallholders’ representation institutions, the project will seek for the transformation of the Nshili cooperative regrouping the 4,000 project beneficiaries into an Nshili Tea Smallholders’ Association that will become the local representation body of the future national smallholders’ Federation. In addition, the project will also seek for the transformation of the zone committee into smallholders’ zone associations (SZA) regrouping 400 households that will become the first level (or zonal level) of the smallholders’ general organization. In Nshili as well as in Mushubi, 12 SZA will be implemented and these 12 SZA will be regrouped in the Nshili Tea Smallholders’ Association (NTSA). Each association, including the NTSA, will elect its ‘bureau’ comprising of a President, a Vice President, a Treasurer and a Secretary. The project will assist each zone committee for its transformation into an association and for its election process.

The project will sign a contract with each SZA for the provision of labor force to cultivate the leased out rehabilitated and developed plantations. The project will provide the NTSA with the necessary inputs, fertilizer and small equipments required for leased out plantations and development of tea plantation in smallholders’ home gardens. The NTSA will then dispatch them to each SZA which in turn will dispatch them among its members. Once the production of the leased out plantations is saleable to the NTF, and in order to benefit from better prices and economy of scale, each SZA will centralize orders for inputs, fertilizers and small equipments to micro-entreprises supported by the project. Delivery will be made through each SZA. Payments will be processed by each SZA from the green leaves sale proceeds.

In a latter stage of development, possible partnership building with smallholders coffee growers’ associations will be further explored by the project with a view to develop a ‘smallholders export crops growers’ national association’.

Sub-component 4: Financial holding

Under this sub-component, the objective of the project is to establish a sustainable financial mechanism that will enable smallholders to become important shareholders of tea factories to be privatized and/or of new tea companies. The activities carried out in this sub-component will be in line with the GoR privatization procedures and promotion of private investments. They will also enable smallholders’ organization to increase their financial resources and to use them for profitable investments in the tea sector. In that respect, the activities undertaken are as follows:

• Sensitization and information of smallholders and smallholders’ associations on the role and benefits of such a financial holding and on their role and responsibilities with regards to its ownership and management. Sensitization and information will be provided in the 5 provinces where tea is grown, starting with Gikongoro province. 2 meetings will be organized for each of the 13 smallholder tea growers’ associations already implemented. Sensitization and information activities will be carried out by the PCU Tea component Manager (see below);
• Establishment of a financial holding ‘Smallholders Financial Holding Ltd’ (SFH) capitalized and managed by smallholders or smallholders’ associations. Initially, the project will finance this holding through equity participation ^[4]on behalf of the smallholders. During its first 5 years of operations, SFH elected members will be trained and supervised by representatives of a local commercial bank where SFH funds are deposited (training costs borne by the bank as its contribution to the project);
• Development of a sustainable mechanism for a fixed annual contribution of smallholders to the share capital of their SFH so as to increase its financial resources. The amount of the contribution will be annually revised by the SFH General Assembly of Shareholders;
• Financing Nshili Tea Company. As a first investment, 15% of the Nshili Tea Company (NTC) share capital will be financed by the SFH, the amount of this investment still needs to be determined based on financial projections and business plan to be provided by the PI (see below). Dividends earned from this investment will be maintained in the SFH in order to maintain the level of its financial resources for further investments in the tea sector;
• Further investments in tea companies. SFH financial resources available will be used for investments in tea companies to be privatized and/or new ones and other investments in/or related to the tea sector (such as packaging plant, warehouses, collection centers). Such investments will be examined in the light of the privatization process and modalities to be defined by the GoR in early 2006 on the basis of a specific study which results will be made available in December 2005. These investments should be subject to a minimum 34% stake in the share capital of these companies, thus giving smallholders an effective role in policy and decision-making of these companies. However, smallholders’ organization stake in share capital will be in line with the GoR privatization policy.

When the possibility of investing in new tea factories or in privatized ones will be exhausted, available SFH financial resources might be used to respond to increases in share capital, to buy shares from other shareholders or to finance additional productive assets and activities. At that time, part of the dividends earned by SFH will also be distributed among its shareholders (smallholders’ associations). Such a decision will be taken by the SFH General Assembly of Shareholders.

[1] 10 zone committees regrouping 400 households each have already been formed and their office bearers trained by TWIN. The project will seek for transforming these committees into legally registered associations.

[2] 465 ha of leased out tea plantations divided by 4,800 beneficiaries.

[3] 735 ha of tea plantations developed in smallholders’ home gardens divided by 4,800 beneficiaries.

[4] The amount of the project financing still needs to be determined as the total cost of the factory has not been finalized. The PI will finance 2/3 of the cost of the factory through long-term borrowed funds and 1/3 through share capital. 15% of the share capital is allocated to smallholders or their organization.